Archive for the ‘economics and public choice’ Category

Washington, DC minimum wage is $8.25 per hour, already higher than most states across America. District residents are poorly served by low-priced big retail stores. For several years, a sequence of mayors has tried to lure Walmart to the District. Three Walmart stores are currently under construction. Three more are planned.

Yesterday, the DC Council vented its hatred of Walmart by passing new legislation by an 8 to 5 vote. The Council Bill would raise the minimum wage on retailers with stores of at least 75,000 square feet, requiring that such retailers must pay a minimum of $12.50 per hour. Except that all existing big retailers and unionized retailers – like Safeway and Giant – are exempt from the hike. Only Mayor Vincent Gray’s veto stands in the way of this discriminatory legislation.

Walmart has responded immediately by cancelling the three newstores, should the bill become law. It is reviewing its contracts to determined whether to abort the three stores under construction. No wonder Congress is more than reluctant to grant DC statehood. What manner of corruption and ineptitude would follow when an electoral majority is completely devoid of forward-looking intelligence

“In his second inaugural address, President Barack Obama called upon ‘We the People’ to preserve America’s ideals of individual freedom and equality.’ When Edward Snowden disclosed the National Security Agency’s secret surveillance programmes, he was rising to this challenge. Like the nation’s ‘founding fathers’, hw was also defying the usurpations of an increasingly intrusive government. Mr. Obama should therefore call off the campaign to apprehend him and offer Mr. Snowden a pardon instead.” Stephen Walt*, ‘Snowden deserves an immediate presidential pardon’, Financial Times, July 9, 2013

“Mr. Snowden’s motives were laudable: he believed fellow citizens should know their government was conducting a secret surveillance programme enormous in scope, poorly supervised and possibly unconstitutional. He was right….Once a secret surveillance system exists, it is only a matter of time before someone abuses it for selfish ends. Richard Nixon kept his own ‘enemies list’ and used the Central Intelligence Agency to spy on american citizens. Former Federal Bureau of Investigation director, J. Edgar Hoover, helped keep himself in office by collecting dirt on officials.” Stephen Walt*,ibid.

“Gerald Ford pardoned Richard Nixon, George H.W. Bush pardoned the officials who conducted the illegal Iran-Contra affair, and Mr. Obama has already pardoned several convicted embezzlers and drug dealers. Surely Mr Snowden is as deserving of mercy as these miscreants. Pardoning him would also show that Mr. Obama’s rhetorical commitment to ‘We the People’, and to open and transparent government, is not just empty words.” Stephen Walt*, ibid.

* Stephen Walt is Professor of International Affairs at Harvard University

In 1689, an unconstitutional English Parliament (unconstitutional because it was not called by the King) met and wrote a new constitution (the original constitution was unwritten). The Bill of Rights narrowed the discretionary power of the monarch, increased the independence of the judiciary, in all but name eliminated any notion of the divine right of kings, and significantly increased the powers of parliament. Most importantly, the suffrage was strictly limited to some 5 per cent of the male population (women had no suffrage until the early 20th century). A high property requirement was set in place for any person to vote. Members of Parliament served without pay, unless appointed as members of the Cabinet. King William III and Queen Mary II were required to sign this Bill of Rights before they could jointly access the throne.

This new constitution significantly reduced the arbitrary discretion of the monarch. Equally important, it set in place a parliament that would firmly establish and enforce property rights, thus paving the way for the Industrial Revolution. Britain became the richest and most powerful nation on the planet, building an Empire on which the sun would never set. Slowly, over time, the suffrage was allowed to expand, until in 1884, individuals without property were allowed to vote. This opened the gates to socialism and to the decline and fall of the British Empire.

Egypt is not yet ready for such a transition. Poorly educated as much of its population is, and subject to Islamic religious fanaticism as one-third of its population, surely is, there is no immediate prospect of establishing and maintaining an effective secular parliamentary system.

So the military, for the time being will have to govern. Since senior members of the military are at this time the primary holders of property in Egypt, this should ensure that an effective system of property rights will be established. If the military is far-sighted, I recommend that tit follows the example set by General Augusto Pinochet in Chile when he seized power from an incompetent and socialist President Allende. The General called in free-market Chilean economists trained at the University of Chicago by Milton Friedman, George Stigler, Gary Becker and Arnold Harberger to reform the economic institutions of Chile. Remarkable success followed. When the General voluntarily stepped down from power and returned Chile to democracy, the country was the richest in Latin America, and remains so to this day. This time around, it may not be so exclusively the Chicago-boys that are called to service – Chicago unfortunately is no longer an uncontaminated citadel of free-market economics. Other universities – such as UCLA, George Mason University, New York University, and Clemson University – may have to supplement Chicago supply.

While so ruling, the Egyptian military should ensure that all young Egyptians, females as well as males, receive a secular education. They should ensure that the job market is open equally to females as well as to males. They should offer stability of rule for a time-period sufficient for wealth-enhancing institutions to emerge. This may take five to ten years of transition governance.

The military should then write a new constitution for Egypt, modeled closely on the United States Constitution. A strict separation between Mosque, Church and Temple on the one side and the State on the other side, should be imposed. As in 1787, the suffrage should be strictly limited by a property requirement, albeit allowing females equal access with males to the ballot box. The secret ballot should be required. The initial suffrage should be restricted to no more than ten per cent of the adult population. Voters should satisfy both the requisite property requirement and (possibly) should be limited to individuals with university degrees and equivalent professional qualifications.The judiciary should be completely independent from the executive and legislative branches of government.

Then the world would truly marvel at the high rate of economic growth and economic freedom achieved by an Egypt unfettered from the bonds of autocracy and backward-Muslim religious fanaticism.

Some readers may be acquainted with two popular television/dvd series on the corruption of democratic political systems promoted under the title: The House of Cards. The earlier series focuses attention on the British parliamentary system. The later take-off of that series focuses attention on the U.S. republican system of government.

In both series, a central figure – Francis Urquart in Britain and Francis Underwood in the U.S. – plays the key role in dirty, greedy, self-obsessed, sexually harassing, politicking. Readers may notice that in both instances the leading characters’ initials are FU. That is no accident, but rather a signal as to how precisely they operate. In both cases, the wives of these despicable individuals are co-dependents who grease the wheels for their mates in return for perceived side-benefits; that is until the side-benefits are no longer quite so apparent.

I shall not provide details of the two series, since I encourage readers who desire to have a good understanding of politics, as it really is in Britain and in America, to access both series. it is best to watch the British series first since this is the model for the second.

When you view the succeeding episodes, and wonder whether the stories truly reflect reality, I Suggest, in the case of Britain, that you think back to the prime minister-ships of Lloyd George, Harold Wilson, and John Major. In the case of the United States, I suggest that you think back to the presidencies of FDR, John Kennedy, Lyndon Johnson, and Bill Clinton. In each case those corrupt individuals operated with the full complicity of their co-dependent spouses.

Watch, enjoy, but always remember when you cast your vote in the ballot box!

When a president is elected into office on the basis of affirmative action criteria, the nation would be fortunate indeed if the elected official were to be truly competent. The United States has enjoyed no such good fortune. President Obama’s first term clearly demonstrated an exceptional level of incompetence in matters economic and international, the two key functions of any modern presidency.

To achieve re-election, Barack Obama had to run an entirely negative campaign that vilified his Republican opponent, a man of evident success in economic affairs, though inexperienced in matters international. Because he could not run on his record, and would not run on a coherent future policy platform, President Obama returned to the White House bereft of almost any policy program capable of attaining majority support in both houses of Congress.

Six months into his second term, President Obama appears to be completely lost, aimlessly steering the vessel of state in increasingly turbulent waters, without any compass to define his direction. Domestically, his only viable policy is immigration reform and he has abandoned details of any such action to the Congress. His economic policy is in a shambles, unacceptable either to Democrats or Republicans, or any combination of both. His international policies are in ruins, as powers, both great and small, respond to his overtures with varying degrees of open contempt.

If the situation does not change – and effective change appears to be beyond the reach of this diminished administration – President Obama will be remembered only for Obamacare. And Obamacare promises to be the most disastrous program ever unfolded on the United States.

This is what predictably happens when criteria other than past performance and future potential are applied by a majority of an electorate in two successive presidential elections. Eight years of uninterrupted incompetence gives rise to a great deal of ruin in a nation.

In 1787, Lieutenant William Bligh set sail from England on the cutter Bounty, headed first for Tahiti, where he was to pick up breadfruit trees and ferry them to the Caribbean where they might produce food for the growing slave population. To save time, Bligh steered the Bounty to Cape Horn, rather than taking the calmer passage around the Cape of Good Hope.

After a month of unremitting turbulence, during which the Bounty was tossed like flotsam by the waves and gale-force winds, Lieutenant Bligh recognized that he would never round the Horn. Instead, he was forced to change direction and to steer his vessel to the Cape of Good Hope. Though reaching Tahiti, and loading his ship with bread fruit trees, Bligh never reached the Caribbean. Instead, his crew mutinied and set him loose on a long-boat allowing him plenty of time to rue his initial directional decision.

Chairman Ben Bernanke now confronts the dilemma of Lieutenant Bligh. Having pursued a relentless path of monetary expansion, designed to socialize U.S. financial markets, this week he determined to round Cape Horn in order to speed up the path to monetary stability. Immediately, Bernanke confronted the savage turbulence of dangerous financial waters together with gale-force political winds from the Obama administration and Democrats in Congress.

In an uncanny projection of the fate of Lieutenant Bligh, President Obama has assumed the role of the Master’s Mate, Fletcher Christian, in signaling mutiny. Ben Bernanke now has no chance of reappointment to a third term. 2014 is to be the end of the line for this loyal servant of the President. In the mean-time, Ben Bernanke has already blinked. After one month of unremitting turbulence, Chairman Bernanke will adjust the rudder and follow the compass to the more peaceful waters of continued monetary expansion.

However, have no doubt that Fletcher Christian will take him down well before the 2014 elections.

In a continuing drama reminiscent of Shakespeare’s Macbeth, Julia (the Red) Gillard has been forced out of office as Australia’s Labor Prime Minister by Kevin Rudd (Crudd to his many enemies), the man whom she ousted from the same office in June 2010. With political blood on both pairs of hands, Punch and Judy both appear to be headed for the knacker’s yard in the upcoming September 14, 2013 general election. A Newspoll survey this week shows Labor trailing the center-right Liberal Nationals by 43 per cent to 57 per cent.

Julia the Red, inevitably, blames her ousting on sexism, though she surely did not claim her 2010 coup on anti-male prejudice. In reality, the current blood-bath is a natural consequence of socialism. As the Iron Lady, Margaret Thatcher once famously noted: the problem for socialists is that sooner or later they always run out of other people’s money!

Julia Gillard conspicuously achieved this fate failing to balance the nation’s budget this year despite hiking an unpopular carbon tax onto the economy. As always under socialism, Australia’s economy is slowing, leaving her Party vulnerable to voter revenge.

Kevin Rudd’s immediate challenge is to convince voters that he presides over a united political party. Following a recent history with parallels to England’s Wars of the Roses, it is doubtful that this victory for the White Rose over the Red will convince Australian voters to stick with such a divided pair of houses. More likely, the September 14 Battle of Bosworth Field will see the White Rose defeated and governance returned to a Liberal National Tudor Rose.

In 1956, the United Kingdom confronted the reality that its days of Empire were finally over. In collaboration with France and Israel, the United Kingdom had asserted its authority over the Suez Canal overwhelming the Egyptian forces of Colonel Abdul Nasser. Britain took this action, as an imperial power, without consulting Washington.

U.S. president, Dwight D Eisenhower, was highly displeased with this autonomous action, that coincided with the USSR invading Hungary to put down a potential uprising, right in the middle of his re-election campaign. The British government was served with a warning that if the Allies failed to withdraw immediately from the Canal Zone, the United States would apply downward pressure on sterling. Sir Anthony Eden, the conservative Prime Minister, a great statesman who had served as Foreign Secretary to Prime Minister Winston Churchill from 1940 to Victory in Europe, and who had developed a close personal relationship with then General Eisenhower, reluctantly ordered withdrawal, thereby signaling the end of his own illustrious career, and, effectively, withdrawal of Britain’s imperial role, at least, East of Suez.

These past few days, President Obama must be reflecting on a similarsequence of events that have occurred under his weak and corrupt administration. No nation on earth now respects the political authority of the United States. U.S.influence in the Middle East is negligible, with the governments of Iran, Syria, Afghanistan, Iraq, Egypt and Pakistan openly flexing their independence from the Stars and Stripes. China and the Russian Federation clearly signal that the United States is a paper tiger led by an incompetent President.

And now, Xi Jinping and Vladimir Putin have publicly flipped President Obama and Attorney General Holder the bird, much in the same manner that Eisenhower flipped Eden the bird in 1956. By allowing Edward Snowden safe passage from their countries, as he flees American snoops without a passport and with felony charges hanging over his head, Xi and Putin clearly indicate that the so-called Pax Americana is over. It has collapsed in a web of lies, corruption and deceit, not least of the People who elected it into office.

Unfortunately, the American political system does not provide for the People to force its president prematurely out of elected office. So American will have to wait some 40 months before they can take their revenge on the betrayal from within.

I predicted that Ben Bernanke would have a tough time dismounting the market bull. Well, as things go, Bernanke may be quickly thrown by the bull and gored to a nasty exit.

The Dow has lost 500 points in two days.Ten year Treasury yields have risen from 1.6 per cent at the end of May to 2.46 per cent today. Bond prices have fallen accordingly.If this goes on, just watch for the political fall-out. After all the 2014 elections are getting closer by the day.

Thus always ends the fatal conceit. Bernanke may act as though he is the master of the universe. In reality, he is just a piece of helpless flotsam in the rodeo arena.

Ben Bernanke eagerly mounted the market bull in the wake of the 2008 financial crisis. Using monetary expansion as a device for refueling the market economy, Bernanke and his colleagues at the Federal Reserve have massively increased the magnitude of base money. By purchasing long-term Treasuries and mortgage securities, the Fed has driven long-term interest rates well below their underlying market equilibrium, imposing significant costs on seniors relying on fixed interest receipts to fund their golden years.

Mounting that bull was easy, cheered on as Bernanke was by almost everyone who had suffered capital losses during the financial meltdown. There is, however, no such thing as a free lunch. Sooner or later, those who mount and ride the bull must figure a way how to dismount without imposing a significant setback to a sluggish economy.Bernanke now confronts exactly that quandary in determining when and how to taper the current QE4 monetary expansion.

The eternal problems confronting the bull dismount are timing and political will. The timing to some extent is under his control. The political will lies elsewhere at higher levels in the political system. Bernanke is already learning the import of the second factor. Earlier this week, President Obama strongly hinted that 2014 is the end of the line for this would-be rodeo star. Wall Street has it that Janet Yellen will be Obama’s chosen successor. And she will ride the bull into hyper-inflation if that is what it takes to keep all the bubbles from bursting.

If Bernanke wishes to dismount the bull before he is ejected by the Big Man, he has little wiggle-room available. After all, he has all but promised near-zero rates into mid-2015 and he oversees a Fed balance sheet that has all but quadrupled in five and a half years to some $3.4 trillion.

Interest groups in Washington and on Wall Street are already urging him that it is too soon to dismount, and dangerous to signal any reduction in Fed bond buying in the near to less-near term. The housing recovery may be on its way, they say, but it is fragile indeed. The jobless rate may be falling, but at the pace of a snail. Deflation, they say hovers on the immediate horizon, and would make its dangerous presence felt should QE4 taper out.

My advice to Ben Bernanke is simple. Dismount now, while you still have some control over the bull. Recovery has been fragile over four years of monetary expansion. Much harm has been done to the economy by the manipulation of interest rates and the socialization of risk. Move monetary policy back to neutral and allow the real economy to breathe and adjust to market forces. I know that this asks a lot for a hard-bitten Keynesian such as you. But surely, by now, you understand that we do not live in a Keynesian world.